Levelized Cost Of Electricity: Solar power and wind energy are rapidly becoming competitive

Solar power and wind energy are rapidly becoming competitive with conventional electric generating technologies like natural gas and coal.

At least that is what many of Wall Street’s most esteemed investment firms seem to be telling anyone willing to listen to them.

Last week, Diane Cardwell, a reporter at the New York Times, did just that. In Solar and Wind Energy Start to Win on Price vs. Conventional Fuels, Cardwell reported that renewable generation are not only competitive with fossil fuels but in some markets are now “cheaper than coal or natural gas.”

The story relies primarily on the most recent version of an economic analysis that compares the costs of competing power generating technologies by the investment banking firm Lazard.

Lazard evaluates the economics of renewable energy technologies based on the “levelized cost of electricity,” a metric commonly used to gauge the overall competitiveness of power generating technologies.

The LCOE represents the per-kilowatt hour cost (in real dollars) of building and operating a power plant over an assumed financial life and duty cycle.

Lazard was hardly the first to bake the books on the economics of renewable generating technologies using the LCOE.

In May, Barclays downgraded the credit ratings for the entire electric utility industry based on an analysis very similar to Lazard’s.

“In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power,” Barclays wrote.

What does that mean?

It means that the LCOE for renewable generation is or is likely to be lower in the near-term future than the “average” price of electricity provided by the electric power grid.ethods for comparing the economic value of intermittent generating technologies (e.g. wind and solar) with the economic value of traditional dispatchable generating technologies (e.g. CCGT, coal, nuclear).